BorgWarner (BWA)
has had a good year. I last wrote about the stock around the time of
its 2016 investor meeting and thought then that the stock was
undervalued and that the Street was overly pessimistic about the
company’s positioning for the eventual transition away from internal
combustion engines. It also didn’t help matters that the company hadn’t
been doing a great job with its quarterly financial results vis a vis
management guidance and analyst estimates. Since then, organic growth
has improved significantly and the company has made a pretty compelling
case for how and why it will continue to be a leader throughout the
process of electrifying passenger vehicles. The shares have certainly
responded – rising nearly 50% since that last article.
It’s
harder for me to bullish now given the valuation. I don’t think the
company is likely to get the FCF margin leverage it needs to validate
today’s price on a DCF basis, though I freely acknowledge that
content/share growth and margin leverage are more important drivers to
the shares of auto components companies in the short run. This is back
on a watchlist for me now, though, as I would like a better balance of
opportunity and risk before committing funds to a position.
Continue here:
BorgWarner Delivering The Content Growth
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